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Mortgage Interest Deduction Thoughts; FHA - Running Out of Money? Buffett Buys more Wells; Who Takes the Hit on Writedowns?

Nov 15 2012, 8:27AM

The median age of a Realtor is 56 - as in "fifty six."
<Insert joke here about median age in photograph used by Realtor in
promotional materials.> If you don't believe me, go to http://www.realtor.org/reports/member-profile,
and remember that "median" is half above and half below. The MBA
doesn't publish this for the people who work for the companies that belong to
it, and besides, many lenders don't belong to the MBA. But when I speak to
various groups, I will often ask people how they go about bringing young
people into the industry - it is a very important subject to think about.
(Just think of the lack of personnel in servicing, DE underwriting, or
compliance.)

At first glance, few in the real estate or lending industry want the government
to do away with the mortgage interest tax deduction. But as noted in
this commentary a few months ago, the deduction a) is rare in other countries,
b) has a much larger perceived benefit than actual benefit. Besides, they'll
probably go from $1 million down to $500k, making it politically acceptable.
Lastly, "The Mortgage Interest Deduction is of limited value because of
low rates and low house prices. A $300,000 house with a 30-year mortgage at
3.25% pays just $7,800 in mortgage interest, yet the 2012 standard deduction is
$11,900 if married filing jointly. If the
MID is nixed, placing your house into a corporation and having the corporation
rent the home to you, allows you to continue deducting all mortgage interest."
(So wrote economist Elliot F. Eisenberg - if you want to receive his free 70
word updates shoot him an e-mail at elliot@graphsandlaughs .net.)

Yes, I take my 89-year old Dad to Costco. He likes the hot dogs, and to people
watch. As best I can tell, Costco's are generally arranged to have a series of
ad posters for you to stare at while you dine, or while you wait in line to
leave. Yesterday my Dad exclaimed, pointing to an ad for home loans, "Hey,
look at that - do you think anyone at this joint gets your commentary?" I
told him I doubted it, and he went back to happily munching his dog, but sure
enough, Costco shoppers think Costco offers home loans. As we all know, they
farm it out, but here is what the press sees.

Is the FHA facing its own fiscal cliff? It is a catchy headline, but
more importantly, there appears to be some truth to it. The actual government
report comes out tomorrow (Friday), but in the meantime, "The Federal
Housing Administration's annual report is expected to show a sharp
deterioration in the agency's financial condition, including a shortfall in
reserves, the result of escalating losses on the $1.1 trillion in mortgages
that it insures, according to people with knowledge of the entity's
operations." Here is the NYT story.

The discussion of "mortgage broker" and "mortgage banker" continues. "The
main thing is getting rid of these titles. Mortgage banker is used
now more than ever after these years of net branch recruiting and broker
bashing, when it's the same if the correspondent employs the originator or not
wholesale or retail. There are many titles to use, but this can be deceiving
at the consumer level. For example, if I personally came to you after
setting up a line of credit with my bank and offered you a loan using that
line, would you personally consider me a bank or banker? I would
certainly hope not. Our industry is just lacking common sense. Let's put
education before sales for once. It will help us all, including consumers
and regulators." Thanks!

Speaking of education...huh? Freddie Mac is competing with Flo-rida on
YouTube? You bet - here are Freddie's views of the housing industry. When I
looked at it, there had been 15 views. I think Flo-rida had 101 million. Come
on, Freddie!!

Here is some quick investment news: Warren Buffett's Berkshire Hathaway disclosed
yesterday that it raised its stake in (among others) Wells Fargo by 11 million
to 422.5 million shares in the third quarter, and it reduced stakes in U.S.
Bancorp (among others). But what does he know?

Turning to the secondary markets, remember that even though Wells, or
Chase, or whoever, "owns" the loan, more often than not it is securitized
through Fannie & Freddie, or securitized by the bank, and the MBS purchased
by an investor such as a money manager, insurance company, bank, retirement
plan, whoever. When a large aggregator/servicer takes a large principal
writedown, do they lose money or does the actual, end investor? The
Financial Times did a report on exactly who takes the hit. "Investors in US
mortgage securities have been forced to absorb large writedowns in response to
a deal between leading financial groups and government agencies over the
"robosigning" scandal. Mortgage bond investors and U.S. lawmakers had feared
such an outcome earlier this year after reports that a deal was near to resolve
accusations that banks mistreated homeowners and wrongfully certified legal
documents used to evict defaulted borrowers. The banks (Chase, BofA, Wells,
Citi, and Ally) agreed to forgive billions of dollars' worth of distressed
borrowers' mortgage principal in exchange for waivers from potential liability.
On Wednesday, BofA said that 60% of the $4.75 billion in first-lien mortgage
principal it has thus far agreed to forgive would come from non-government
guaranteed loans that were packaged into bonds and sold to investors. Of
JPMorgan's $3bn in forgiven mortgage debt, slightly less than half has come
from investors' holdings, a person familiar with the matter said. The other
three banks either declined to provide numbers or did not respond to requests
for comment. Earlier this year, some US senators worried that pension funds
would have to absorb losses on their mortgage bond holdings as a result of a
settlement meant to punish banks and aid troubled borrowers."

Remember,
however, that much of this settlement money that is going to the states is
being used by the states for non-housing issues, usually helping alleviate some
of their own deficits. And is that the right thing to do? And is the US
government upset about that?

On to some other somewhat recent training, conference, and investor
updates, along with the usual disclaimer that it is best to read the
bulletin for full details, but this will give you a flavor for current news.

The New
Mexico Mortgage Lenders Association will be hosting an event devoted to the upcoming
2013 regulatory changes discussed at the MBA today in Albuquerque. For more information
go to http://nmmla.com/calendar/.

The California Mortgage Bankers Association Western States 2012 Legal
Issues Conference will be held in Costa Mesa, CA on December 3rd.
Highlights include a speech by the Western Regional Director of the CFPB. Register here.
Sponsorship opportunities are also available.

The Mortgage Bankers Association of Florida is holding its 10th annual
Eastern Secondary Market Conference from March 13th-15th in Orlando.
Included in the program are a variety of exhibits, networking opportunities,
and a speech by a senior JPMorgan Chase executive. The schedule is still
being finalized, but registration is open for attendees and exhibitors.
See here
for more details.

PHH has revised its Underwriting Submission and Closed Loan Delivery
checklists to include the date on which the loan was locked with the borrower,
the list of settlement service providers, a certification signed by the
client's representative. The FHA Streamline and Non-Streamline refinance
checklists have been consolidated into one checklist for all VA loans, and the
VA IRRRL and Non-IRRRL checklists have been combined into one for all VA
loans. The new checklists should be used starting immediately.

Effective for all loans received on or after November 19th, PHH will not
purchase any loans involving rescindable transactions with an under disclosure
error of more than $35 in the Truth in Lending Disclosure.

Carrington Mortgage has rolled out a new non-conforming jumbo product
that allows borrowers to take out 15- or 30-year fixed-rate loans of up to $2
million on primary residences. Applicants need FICO scores of 700 for
loan amounts of up to $1 million and 720 for amounts up to $2 million along
with an 80% LTV.

All FHA Streamline loans submitted to Carrington on or after October 29th that
are located in areas affected by the hurricane will require an exterior
inspection using the DU Underwriter Property Inspection Report (Form 2075).
The appraisal should be ordered through an approved AMC, and the cost for the
2075 should be disclosed on the initial. This policy remains in effect
until January 31, 2013.

On to the markets....zzzzzzz....it sure seems that we're in the holiday season
already, given the early Thanksgiving this year. Interestingly, this week agency
MBS prices hit their "widest" levels compared to risk-free Treasuries since QE3
came along in September! "Lack of liquidity" and
"illiquidity" are two terms that we may be hearing as MBS prices
worsened .250 yesterday. Thomson Reuters reported that Wednesday's mortgage
banker supply was near its normal amount of $3 billion with over 80% in 30-year
3.0% coupons (sounds about right, since this security bucket holds 3.25-3.625%
mortgages).

But wait! The minutes from the FOMC's October meeting, released
yesterday, did reveal discussion on a "QE4": "Looking
ahead, a number of participants indicated that additional asset purchases would
likely be appropriate next year after the conclusion of the maturity extension
program in order to achieve a substantial improvement in the labor
market."

We've had a fair amount of news today already. The Consumer Price Index
(CPI) for October, expected lower to +0.1 from +0.6 previously with the core
unchanged at +0.1, came out at +.1%, core +.2%. Jobless Claims went up 439k
from 361k, +78k! Continuing claims went from 3.16 up to 3.34 million - most of
this was attributed to Hurricane Sandy. (Sandy will influence economic releases
for many months.) The Empire State Manufacturing Survey (Nov) predicted
slightly worse to -6.7 from -6.16, was -5.22. At 7AM PST brings the Philly Fed
Survey for November.

After this surprising Jobless Claims number, 10-year Treasury notes,
which closed Wednesday unchanged with yield at 1.59%, are at 1.60%, and MBS
prices are also roughly unchanged.

The Talking Centipede:
A single guy decided life would be more fun if he had a pet.
So he went to the pet store and told the owner that he wanted to buy an unusual
pet.
After some discussion, he finally bought a talking centipede, (100-legged bug),
which came in a little white box to use for his house.
He took the box back home, found a good spot for the box, and decided he would
start off by taking his new pet to church with him.
So he asked the centipede in the box, "Would you like to go to church with
me today? We will have a good time."
But there was no answer from his new pet.
This bothered him a bit, but he waited a few minutes and then asked again,
"How about going to church with me and receive blessings?"
But again, there was no answer from his new friend and pet. So he waited a few
minutes more, thinking about the situation.
The guy decided to invite the centipede one last time.
This time he put his face up against the centipede's house and shouted,
"Hey, in there! Would you like to go to church with me and learn about
God?"
YOU ARE GOING TO LOVE THIS ......
This time, a little voice came out of the box, "I heard you the first
time! I 'm putting my shoes on!"

About the Author

Rob Chrisman began his career in mortgage banking - primarily capital markets - 27 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management...
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